Chapter 3: Legal Concepts of Insurance

Question 1

Adhesion

Answer 1

A contract that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer.
The applicant adheres to the terms of the contract on a take it or leave it basis

Question 2

Agent

Answer 2

An agent represents themselves and the insurer at the time of application

Question 3

Aleatory

Answer 3

An aleatory contract presents the potential for unequal exchange of value or consideration between both parties.
Aleatory contracts are conditioned upon the occurrence of an event.

Question 4

Apparent Authority

Answer 4

The appearance of the insurer providing the agent authority to perform unspecified tasks based on the agent-insurer relationship.

Question 5

Broker

Answer 5

A broker represents themselves and the insured at the time of the application

Question 6

Competent Party

Answer 6

One who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable and not influenced.

Question 7

Concealment

Answer 7

Failure of the applicant to disclose a known material fact when applying for insurance.

Question 8

Conditional

Answer 8

Describes the insurer’s promise to pay benefits depends on the occurence of an event covered by the contract.

Question 9

Consideration

Answer 9

The part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

Question 10

Applicants

Answer 10

Provide the insurer with a completed application and initial premium as consideration for insurance.

Question 11

Estoppel

Answer 11

The legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner or if certain conclusions are drawn.

Question 12

Parol Evidence Rule

Answer 12

Parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by parol (oral) evidence.

Question 13

Subrogation

Answer 13

The right for an insurer to pursue a third party that caused an insurance loss to the insured.

Question 14

Unilateral

Answer 14

Only one party (the insurer) makes any kind of enforceable promise

Question 15

Four Essential Elements in a Contract (4)

Answer 15

1. Competent Parties
2. Legal Purpose
3. Offer and acceptance/agreement
4. Consideration

Question 16

What 2 partiesare in an insurance contract? What 2 are not?

Answer 16

The 2 parties are the Applicant and the Insurer.

The 2 parties that are not are the Insured and the Beneficiaries.

Question 17

What are the elements that must be present in an estoppel?

Answer 17

1. An agent/legal rep acting within his authority makes an inaccurate representation on behalf of the insurance company.
2. A consumer relies on the veracity of the information provided to make legally binding decisions.
3. When a circumstance arises that tests the validity of the questionable representation, the insurance company refuses to honor it by citing the terms of the contract as written.
4. The decision of the insurer causes financial harm to the consumer

Question 18

Tort Law

Answer 18

involves private wrongs that independent of contracts. A private wrong.

Question 19

Simple negligence

Answer 19

Failure to act/not act in a reasonable or prudent manner

Question 20

Gross Negligence

Answer 20

A reckless disregard for the need to act in a resonsable manner, regardless of the potential for harm

Question 21

Willful and wanton negligence

Answer 21

Occurs when someone recklessly disregards reasonable care standards and is aware that bodily injury or property damage will occur.